Senate Tackles Restructuring of Communications Industry

ByMerrill Brown

May 31, 1981

A Senate committee on Tuesday begins consideration of controversial legislation that would revamp the growing telecommunications field, a plan that would entail the most complex restructuring of an industry and a single company -- American Telephone & Telegraph Co. -- ever undertaken by Congress.

Nearly a year after a House attempt to rewrite the outdated Communications Act of 1934 failed when antitrust concerns blocked legislation from reaching the House floor, the Senate Commerce Committee -- now chaired by Sen. Robert Packwood (R-Ore.) takes on the issue again.

The Senate hearings will begin the sixth year of still unsuccessful and often bitter congressional debate about the future of the industry and AT&T, its largest component. The atmosphere surrounding that debate is clouded by three major court cases, uncertain Reagan administration policies, new regulators, congressional preoccupation with budget and tax issues, and an increasingly fragmented industry.

Thus -- although prospects for passage of the legislation by the Republican-controlled committee appear bright, with endorsement of the bill by four majority members including Packwood and Sen. Barry Goldwater (R-Ariz.) who is the communications subcommittee chairman -- prospects for ending the legislative logjam are, at best, murky.

Further complicating the legislative picture is a potentially divisive Republican tussle between Packwood and Sen. Strom Thurmond (R-S.C.), chairman of the Judiciary Committee. Thurmond has announced plans to seek a referral to his committee of the bill because of the same antitrust concerns that prompted Rep. Peter Rodino (D-N.J.), House Judiciary chairman, to get a review of last year's House bill.

Rodino's efforts and a recommendation against the legislation effectively killed the bill last fall. Despite important differences between the rules of the chambers of Congress, Thurmond could put a roadblock in the way of plans laid by the bill's supporters.

The antitrust issue revolves around the bill's provisions that alter a government antitrust decree with AT&T. In addition, most experts say such legislation could alter the relief options facing the court hearing the government's current antitrust suit against AT&T.

But there is nothing on the Commerce Committee's regulatory agenda more important to Packwood. "Sen. Packwood is committed to having a vote on the bill this year," said William Diefenderfer, the committee's chief counsel. "It's our number one deregulatory bill. Nothing has a higher priority."

On the other hand, Rep. Timothy Wirth (D-Colo.), chairman of a House communications subcommittee and an advocate of House legislation last year, is moving far more slowly than his Senate counterparts, holding deliberate hearings this spring on the general make up of the industry. Legislation is not expected to be considered on the House side until fall.

But despite the political popularity of legislation tagged as deregulation, the Senate bill is much more than that. Although it would lift portions of the Federal Communications Commission's regulation of the telephone and related communications industries, would alter the state's role in regulating interstate communications and would change the relationships between long distance and local phone companies, the flap surrounding the bill focuses on the restructuring of AT&T.

Last year, the Federal Communications Commission -- now under Republican control -- approved one form of the AT&T restructuring, voting to permit the company to enter unregulated markets such as data processing. But that decision, which forces AT&T to set up a new branch to enter new fields, is the subject of a major court challenge by computer and other industry concerns. In a related matter, AT&T has asked a federal judge in New Jersey to revise a 1956 consent decree between the Justice Department and AT&T. That decree bars the company from entering the fields where FCC now says the giant phone company belongs and also vehemently opposed by many of the same AT&T opponents.

Finally, the regulatory picture is further clouded by the continuing trial of the current Justice Department antitrust suit against AT&T. After the government opened the case slowly and in a somewhat disorganized fashion, government lawyers now say the case is moving quickly and smoothly. In fact, their portion of the case may close by midsummer. The department's aim is to breakup the Bell System.

Yet, one of the reasons its supporters say the bill is so critical is that it would end the regulatory and judicial uncertainty surrounding the industry. At a time when the merging computer and communications businesses are widely considered one of the few fields where stagnant American industry thrives, communications policy making and the issues raised in the legislation are of increasing national importance.

Any examination of the participants in the policy debate lends added credence to the notion that the legislative debate is vital. The world's largest company, AT&T, with 1980 sales of $50.8 billion and profits of $6 billion, is the issue's focal point.

The principal opposition comes from long-distance telephone, computer and publishing concerns. One such group of opponents recently wrote to Commerce Department Secretary Malcolm Baldrige urging the Reagan administration to avoid the support given last year's legislation by the Carter administration.

The signers of the letter were representatives of 800 companies with 1980 revenues of more than $7 billion, companies ranging from long-distance AT&T competitors such as MCI Communications Corp. to computer industry concerns like Ross Perot's Electronic Data Systems Corp.

Further adding tot he strength of the opposition to the bill is the slow emergency of General Telephone & Electronics Corp., the nation's second-largest telephone company with sales of about $10 billion. GTE, historically aligned with AT&T on public policy issues, has made virtually a clean break with the Bell System, attacking the company's judicial effort in New Jersey and now becoming a critic of the legislative restructuring proposal. The bill's structural provisions "tend to be anticompetitive, rather than competitive," said a GTE spokesman.

Also launching aggressive opposition to the effort is the American Newspaper Publishers Association, which is concerned by the bill's provisions that would permit AT&T to provide forms of information and electronic advertising services to the public. The newspaper group said the bill "fails to recognize that a company providing monopoly local telephone service has a great potential for acting anticompetitively to favor its own subsidiary in the information marketplace."

AT&T has been pushing for legislation to clarify its own future role in the industry. But even an AT&T spokesman, while noting the company is "hopeful [that] legislation will emerge from this session of Congress," said the company "has a lot of problems" with the current form of the bill. In the company "has a lot of problems" with the current form of the bill. particular, the company is unhappy with some restrictions on information transmission and others on the Bell's ability to market Bell Labs' products abroad.

The company will outline its detailed views on the bill later in June when AT&T Chairman Charles Brown testifies before the Senate panel. Without support from AT&T and independent and rural telephone concerns, for example, it is unlikely the bill could get far. Most observers, however, predict Bell will support this legislation with some relatively minor tinkering and the other telephone company concerns say the bill is the best yet to emerge on Capitol Hill.

Equally important is the emergency of a telecommunications policy from the Reagan administration. Baldrige is scheduled to testify this week, as is U.S. Trade Representative William Brock, a representative of the Department of Defense and the new FCC chairman, Mark Fowler.

Administration sources say the Reagan team will attempt to avoid the fighting between various departments over the legislation that characterized the Carter's team's efforts.

The Office of Management and Budget and the White House are attempting to coordinate administration policy, although the leading government agency on communications policy matters, the Commerce Department's National Telecommunications and Information Administration, remains without a chief. Bernard Wunder, a former House aide and a proponent of similar legislation, is slated for the post. Therefore, the Commerce Department, at least, is expected to endorse the bill.

But already the Department of Justice's antitrust division is opposed to AT&T's New Jersey move and, historically, the department has opposed the entire separate subsidiary concept. Late last week, administration officials were attempting to develop a coordinated policy. The emergence of that policy, in light of the administration's current high standing in Congress, would greatly enhance the bill's prospects.